A US Supreme Court order freezing the largest sex abuse settlement in U.S. history signifies a shift away from long-standing tradition in the handling of concluded bankruptcy cases. Justice Samuel Alito recently issued an administrative stay that has indefinitely halted a $2.46 billion Chapter 11 plan settlement for the Boy Scouts. This plan has been in operation for 10 months and aims to compensate 82,000 child sex abuse claimants — an undertaking made contentious by the uncertainty of what follows.
The directive conflicts with the established use of the Equitable Mootness Doctrine — a rule often applied to block bankruptcy appeals for plans already being implemented. This doctrine, rooted in the premise that reversal of plan-related transactions and payments once executed would be prohibitively challenging and unfair to involved parties, has been questioned by Alito in the past.
A small group of survivors lodged an appeal against the Boy Scouts bankruptcy plan, which took effect in April 2023, due to provisions that grant immunity from subsequent lawsuits to the organization’s extended network of local councils and scouting activity sponsors. They contend that their grievance correlates with the Supreme Court’s pending decision on the legality of non-consensual third-party releases following the contentious bankruptcy case of opioid manufacturer Purdue Pharma LP. Both the approved bankruptcy plans of the Boy Scouts and Purdue Pharma rely on controversial releases of liability.
Over several years, petitioners have urged the Supreme Court to reconsider the application of equitable mootness, which is frequently invoked by federal courts to dismiss bankruptcy appeals for already approved plans. There are disparate views among appellate judges on the application of this doctrine. Alito, prior to serving on the Supreme Court, opined that this doctrine granted excessive authority to bankruptcy judges.
Lawyers representing 144 victims challenging the Boy Scouts’ bankruptcy plan are waiting for the Supreme Court’s decision in a related case that could shield Purdue Pharma’s owners from opioid-related lawsuits as part of a $6 billion settlement. A decision in these matters is anticipated by June. The victims contesting the Boy Scouts plan have dismissed all efforts to halt their appeal by invoking the doctrine, saying it misconstrues their desired relief.
Alito’s terse order does not specify how long this administrative stay could last. Attorneys’ views are divided on how the high court might rule on the Purdue case, based on this unprecedented halt of a Scouting Settlement Trust in operation. Despite the worry this causes among victims awaiting compensation, some attorneys see the potential positive that this unprecedented Supreme Court stay could eventually lead to abolishing non-consensual third-party releases in bankruptcy plans. The details of these unfolding legal dramatics are available for further reading.